An Interview with Randy Vataha Daniel A

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Kinesiology (Formerly Exercise and Sport Science) College of Arts and Sciences

2006 Executive Interview: An Interview with Randy Vataha Daniel A. Rascher University of San Francisco, [email protected]

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Recommended Citation Rascher, Daniel A., "Executive Interview: An Interview with Randy Vataha" (2006). Kinesiology (Formerly Exercise and Sport Science). Paper 14. http://repository.usfca.edu/ess/14

This Other is brought to you for free and open access by the College of Arts and Sciences at USF Scholarship: a digital repository @ Gleeson Library | Geschke Center. It has been accepted for inclusion in Kinesiology (Formerly Exercise and Sport Science) by an authorized administrator of USF Scholarship: a digital repository @ Gleeson Library | Geschke Center. For more information, please contact [email protected]. International Journal of Sport Finance, 2006, 1, 71-76, © 2006 West Virginia University Executive Interview An Interview with Randy Vataha Conducted by Daniel A. Rascher and Dennis R. Howard

Randy Vataha grew up in Garden Grove, California, was moved to the New Orleans Superdome for the sec- where he attended Rancho Alamitos High School. He let- ond season since a stadium of adequate size was not avail- tered in four sports at Rancho and upon graduation able long-term in downtown Boston. Randy served as decided to focus on football. president of the New Orleans Breakers in 1984. After a year and a half at Golden West Junior College, Ultimately, the team was sold to new ownership that where he made the transition from high school quarter- moved the Breakers to Portland, Oregon, when the USFL back to college wide receiver, Randy received a football decided to change its spring schedule to the fall. and academic scholarship to Stanford University. He was After returning to Boston in late 1984, Randy became a a starting wide receiver in the 1969 and 1970 seasons. In partner and vice president in the world’s largest executive his senior year, Stanford won the Pacific 8 championship search firm at that time, Korn-Ferry International. While and went on to challenge unbeaten Ohio State in the Rose doing a search for Bob Woolf Associates Inc., a sports Bowl. The Stanford team quarterbacked by Jim Plunkett agency that represented athletes and entertainers in con- defeated Ohio State 27-17 and Randy caught the final and tract negotiations, Randy’s long-time friend and compa- decisive touchdown in the game. Randy went on to com- ny founder, Bob Woolf, asked him to consider taking the plete his academic career at Stanford, receiving a BA position of Chief Executive Officer. Randy agreed and degree in political science in 1972. became CEO of Bob Woolf Associates Inc. in March of In 1971, Randy was the 17th draft choice of the Los 1986. Randy negotiated major contracts and oversaw the Angeles Rams. After attending training camp and being daily operation of the company, which represented a vir- released by the Rams, he was picked up by the New tual “Who’s Who” roster of sports and entertainment England Patriots and reunited with Plunkett. Randy went superstars including Larry Bird, Tom Glavine, Joe on to play with the Patriots for six years and finished his Montana, The New Kids on the Block, and Larry King. career with the Green Bay Packers in 1977. In 1974, In 1994, Randy, along with his partner Robert L. Randy was elected the player representative for the New Caporale, formed Game Plan LLC. Game Plan provides England Patriots to the NFL Players Association. He consulting and investment banking services to the sport became a leader in the Association and served on the and entertainment industry. The company’s primary Executive Committee for Collective Bargaining. function is to represent professional sports teams or Randy entered the world of business in 1977 when he potential owners of professional teams in their acquisi- started the Playoff Sports and Fitness Clubs, and expand- tion, sale, financing, and/or capitalization. Some of Game ed the company to 10 facilities by 1981, all located in New Plan’s transactions include the purchase of the Boston England and New York. Celtics in 2002, the sale of the Ottawa Senators in In 1981 Randy attended the founding meeting of the September of 2003, the purchase of the Los Angeles United States Football League and helped give birth to Dodgers in 2004, and currently handling the sale of the the USFL. He became co-owner of the Boston Breakers St. Louis Blues. Game Plan has also been very active in Football Club, which played its inaugural season at minor league baseball, including raising $40 million of Boston University’s Nickerson Field in 1983. The team Vataha new capital for Mandalay Baseball Holdings, which owns With this new pool of capital has come greater creativ- five minor league baseball franchises. ity in the capital structure of franchises. Given that each Randy is probably the only person in the United States league has its formal and informal limitations on secured who has been a professional player, sports union negotia- debt on franchises, new capital sources are utilizing more tor, team president, owner, sports agent, and sports complicated capital structures including preferred equity investment banker. or debt, mezzanine debt, and holding company struc- He is married to the former Deborah Ayn Young of tures to create more value for their invested capital. Garden Grove, California, and is the father of three chil- Given the historical increase in franchise values and cur- dren, Collin, Kyle, and Courtney. rent franchise values, new capital sources have become a critical part of providing future financial fuel to sustain Role and Trends the growth in franchise values. Q: What are the essential skills needed for your job? Q: What will we see in the near future in sports investment A: First you need all of the fundamental financial skills banking? What changes do you see with respect to fran- and knowledge base that any traditional investment chise financing? banker would possess. Second is a working knowledge of A: As stated above, I think the increasing involvement of the professional sports team business. This includes such equity funds and hedge funds will continue to change items as a complete understanding of the collective bar- franchise financing. In addition, the more traditional gaining agreements with the various players associations, banks that have sports lending specialties will continue to the inner workings of the leagues and how they interact transition into more creative financing structures to and affect franchise operations, the future development of remain competitive. Also, we are starting to see more tra- revenue sources such as international expansion and/or ditional debt sources that have historically avoided pro- league owned media outlets and distribution, etc. Third, fessional sports, given the past risk and volatility, creating given professional sports is a very small industry and small sports specialty practices that are aggressively purs- everyone knows everyone, you must have the ability to ing various sports team and related financings. develop and maintain relationships with owners and sen- Q: What sports have the most growth going forward (e.g., ior league executives regardless of what side you are on in in terms of revenues and franchise values)? any particular transaction. This is really based on your A: At the franchise level, the NHL has the best opportuni- ability to develop a reputation for being highly ethical and ty to increase its average franchise value on a percentage competent while dealing in a world that does not neces- basis over the next few years given its new collective bar- sarily follow traditional financial structures or valuations. gaining agreement. Adding a hard salary cap and revenue Q: What are the recent trends in sports investment sharing to a league that has sustained significant financial banking? difficulties over the last 10 years should dramatically A: The primary trend is tied to the sources of capital for increase its franchise values in the short term. Long-term professional sports teams. There are an increasing num- value will be determined more by the NHL’s ability to sig- ber of equity funds and hedge funds looking seriously at nificantly expand national media revenues and other professional sports both on the debt and the equity side. potential league endeavors such as European expansion. Now that all four major sports leagues have a salary cap, At the league level, the NFL Network is a sleeping giant or in the case of Major League Baseball, debt service rules, that is waking up. This season the NFL Network will carry these funds can better analyze the risks associated with live regular season NFL games on Thursday nights and investing or providing debt to professional sports fran- selected Saturdays. This will motivate the various nation- chises. Given a steady increase in the value of these teams, al cable systems that are not currently carrying the NFL a new source of capital is generally welcomed. Network to do so. The result would be a national sports network with a subscriber base comparable to ESPN and the potential to be a major competitor to ESPN.

72 Volume 1 • Number 2 • 2006 • IJSF Executive Interview Major League Baseball has seen great success to date practice, primarily representing professional sports with Major League Baseball Advanced Media (“BAM”) teams. We both owned and operated our own team in the which shows substantial potential for future growth in old United States Football League. In addition to owning revenue and value for MLB team owners. a team, I have a somewhat unique background having Q: What are the challenges, benefits, and issues involved been a player in the NFL, a member of the Executive in running a boutique investment bank focused on sports? Committee in the NFL Players Association, including A: The challenge in running a specialized investment bank involvement in negotiating collective bargaining agree- in the sports industry occurred in the early years when we ments, and an agent with Bob Woolf negotiating were trying to educate potential clients to the benefits of player/entertainer contracts for people like Joe Montana, working with a group that only dealt in professional Larry Bird, Tom Glavine, and Larry King on CNN. sports. Since we are generally involved with very success- Over the 60 years of combined sports industry experi- ful businessmen that often have significant relationships ence, Bob and I have developed several ideas about how at major investment banks, it took a lot of development to maximize the value of sports teams and leagues. As we time and some very successful transactions to demon- observed the difficulties that the NHL was experiencing strate to the marketplace that Game Plan has a unique financially prior to their new CBA, we focused our atten- ability within the sports industry to get things done. tion on that league. We concluded that the NHL was a The benefit of operating Game Plan is that we are doing clear candidate for a single entity structure with the what we love. Many very successful people come to us League (single company) owning all of the franchises. saying they are tired of their current business and since Most people immediately assume that this was based on they are huge sports fans, they want to know how to tran- creating a way to dramatically decrease player costs. sition their business skills into an industry that they per- Nothing could be farther from the truth. Certainly, play- ceive they would really enjoy, i.e., sports. We are er costs had become far too high, 75% of the NHL’s gross fortunate to be there already and in those trying revenue, but we assumed that this would be addressed in moments that always occur in any transaction, we remain collective bargaining whether or not we owned the teams. grateful that we are where we are. Where we saw the opportunity was beyond just player The main issue we have in running Game Plan is select- cost reduction. On the expense side we believed there ing the right mix of projects to be involved with. We have were significant reductions that could be achieved in the been extremely careful to never extend ourselves to a cost of operating each franchise as part of a single entity. point that it would inhibit our ability to provide the best For example, increasing the league-wide scouting pro- possible service for any client. There is always that temp- gram, of which the cost is shared by 30 teams while sig- tation to add that additional project given the revenue it nificantly reducing the duplication at the team level for would generate, but we have learned over the years what scouting costs. The result was a very significant savings our capacity is and never exceed it. overall without hurting the product in any way. On the revenue side there were opportunities such as eliminating Examples the exclusive local media territorial rights that each NHL Q: Please take us inside a deal, such as your work involv- franchise holds and negotiating all media contracts, local ing the purchase of the NHL. What were the key elements? and national, at the League level. This would eliminate a How did you choose your price? What prevented it from franchise’s right to block the showing of other NHL being accepted? games in its territory even if it generated more overall A: Between my partner Bob Caporale and myself, we have revenue for all of the teams. been involved in every aspect of the professional sports Based on these and many other innovative principals, industry. For many years, Bob was a practicing attorney we developed a full business plan for the acquisition of all with a very successful sports and entertainment legal 30 NHL teams. We then approached our first equity source, Bain Capital, with the goal of raising about 30%

Volume 1 • Number 2 • 2006 • IJSF 73 Vataha of the capital we projected would be necessary. After • The Dodgers are one of the premier franchises in all reviewing the plan, Bain agreed to provide all of the equi- of professional sports with a great tradition on and ty necessary to acquire the NHL. We then approached a off the field. traditional sports bank lender for the debt component • They are in downtown Los Angeles, which is the sec- and they agreed to provide the debt. In aggregate we ond largest market in the US. raised about $4.5 billion. • Their fan base is incredibly stable. Since opening We determined the price based on the business plan for Dodger Stadium in 1962, the Dodgers have drawn the operations of all 30 teams. Once fully vetted with our more fans that any other MLB team. Over the last 10 equity and debt partners, we balanced the projected IRR years, they are the only MLB team to exceed three equity return with the risk factors associated with the million in attendance for all 10 years, with the plan. This resulted in a final offer in excess of $4.2 billion, Yankees and Cardinals second, exceeding that mark or an average around $140 million per team. Obviously, seven of 10 years. this price would be scaled based on each team’s financial • The franchise included Dodger Stadium and the performance, market size, etc. nearly 300 acres of prime real estate surrounding it. It is our feeling that the deal was not accepted primari- • Their local television contract was undervalued since ly due to the condition we imposed that all 30 teams must FOX owned the team and the team’s local TV con- agree to sell or there was no deal. Apparently some own- tracts were with FOX owned companies. ers decided not to sell at virtually any price because they • We believed that the losses could be eliminated with enjoyed owing their franchise and their primary motiva- a different approach to managing the franchise while tion was not financial. However, this might have changed producing a better on-field product. had the collective bargaining agreement not been settled. The key problem was to develop a capital structure to Q: What were the key elements in your work involving the be able to pay FOX’s price while properly financing the purchase of the L.A. Dodgers? acquisition of a franchise that had suffered such severe A: The acquisition of the Los Angeles Dodgers was both losses. We faced three major problems with the acquisi- the most challenging and rewarding project we have tion, 1) procuring enough debt to make the transaction worked on from a financial perspective. Our relationship work at FOX’s price, 2) meeting MLB’s “Debt Service with Frank McCourt started when he retained us in Rules,” which significantly restricts the amount of regards to his bid for the Boston Red Sox. We quickly secured debt a franchise can have, and 3) convincing learned how bright, determined, and creative Frank was. everyone that the franchise would be quickly turned Although we did not win that bid, it was clear that the around financially. Red Sox process had opened Frank’s eyes to the value and Ultimately, we overcame all of these issues by focusing rewards of owning a Major League Baseball team. After on a carefully developed business plan and presentation the Red Sox sale, Frank asked us which MLB franchise that was built around all of the positive factors listed that was either for sale or might be for sale would we go above. We received great cooperation from MLB, and after. Our immediate response was the L.A. Dodgers. FOX worked tirelessly with Frank and our team to com- Eventually the team became available. However, the sale plete the transaction. process started slowly because the franchise had lost an average of $42 million a year for three straight years and Details the owner, FOX, wanted a price between $350 and $450 Q: What are your thoughts on the merits of the following million. Frank started his quest to buy the Dodgers in the franchise valuation methods: price/revenue, price/earn- summer of 2003 in spite of the team’s financial perform- ings ratio, or discounted cash flow method? ance to date. Frank agreed with us on the underlying A: Of the three mentioned, only the price/revenue method value of the franchise based on the following: has any real value in professional sports since many teams

74 Volume 1 • Number 2 • 2006 • IJSF Executive Interview have negative earnings and cash flow. However, the price Disney and AOL Time Warner have been sold or are in revenue methodology looks only backwards and is gener- the process of being sold. Even though it is likely that ally a scale that only applies to teams sold over a finite many fans would purchase stock in their favorite team period, usually five years. The result is generally a very not expecting any financial return, over time, dealing wide-value range. For example, 2 to 3.5 times revenue with the SEC requirements and filings is very time con- range would not be uncommon utilizing this method, so suming and a major distraction for professional teams. if revenues were $100 million, your range would be from More importantly, there has been an active market for $200 to $350 million. We would not find that particularly team sales or the sale of ownership interests in teams, so helpful in valuing a team. Many other factors must be there is liquidity and a constant pool of capital available analyzed before determining a team’s value. Gross rev- to team owners without the complications of operating a enues is certainly one of them but comparable sales, the public company. market size, stadium/arena deal, portability of the fran- Q: Do you see any minor sports franchises perhaps issuing chise, local media contracts, quality of the team, commit- equity using direct public offerings (DPO), as opposed to ted long-term player and other contracts, etc. all have a the more expensive IPO? significant impact on franchise values. A: This may happen in an isolated case or two but we do Q: In general, what are your bases for determining the not think that there will be any trend in this direction. controlling interest premium for a sports entity and how Various ownership requirements in minor league base- does this differ, if at all, from non-sports entities? ball reduce the likelihood of this as a significant capital A: Most partnership agreements today, that include source. minority investors, usually have some type of tag-along- rights provision to protect the minority investors from Future the controlling partner selling just the controlling interest Q: What are some of the big unanswered questions in at a premium and forcing the minority partners to sports finance that you wish you had answers to? remain in place. Absent such provisions, a controlling A: Since all transactions must be approved by their interest partner could sell control of a franchise at a sig- respective leagues and there are significant debt restric- nificant premium given the typical benefits that are tions and equity requirements, most of the major finan- included in the controlling interest, i.e., management cial issues have enough history to be understood by fees, operational control, notoriety, etc. Given the wide experienced sports investment bankers. variance of these benefits from team to team, it is impos- One major question will be the impact of increased and sible to put a general value on the control premium in enhanced revenue sharing in the leagues. The NHL added sports. In non-sports businesses, the control premium is revenue sharing for the first time as a component in its generally a function of operational control and does not new CBA; the NFL just increased its already substantial include the notoriety factor that can add significant value revenue sharing program in its CBA extension; and MLB to the control premium of a professional sports team. is already suggesting that the League would like to Q: Why are there not more publicly traded professional increase the level of revenue sharing in its CBA negotia- sports franchises, given that there is likely to be a built-in tions at the end of the 2006 season. In addition, there are fan base of potential stock purchasers? always evolving questions like the future value of the NFL A: First, the NFL does not allow them. The other three Network, the ultimate impact of the new CBA on NHL leagues do but with restrictions. The Boston Celtics franchise values, the future value of Major League (NBA), Cleveland Indians (MLB), and Florida Panthers Baseball Advanced Media, or the battle over team con- (NHL) are examples in each league that were publicly trolled Regional Sports Networks (RSN) versus the inde- traded for some period of time. The trend has gone the pendent RSNs. other way with all three of these being taken private and teams that were owned by public companies such as

Volume 1 • Number 2 • 2006 • IJSF 75 Vataha Q: Similarly, what are the most critical research needs in the area of sport finance? What are the unanswered questions and what type of empirical support or data would be most valuable? A: A better understanding of why franchises are financially successful and what are the critical drivers on both the revenue and expense side that produce those results. It is far too simple to assume that winning teams are also successful financially. The question of cause and effect becomes very important. If you assume that a winning team is the cause with the effect being financial success, then you are dooming 50% of your league’s franchises to financial failure (that half that does not have a winning team). Correlating and analyzing such data as the team’s market size, team performance, stadium/arena deal, management, player costs, etc., in a standard format and ranking system that would allow a much better understanding of what are the real factors in a franchise’s financial success would be a very valuable exercise. To accomplish this, you would first need accurate data as to which teams have been profitable historically and which teams have not. You would also need to develop a complete list of those factors that could impact a team’s financial operations and have access to data for each factor for each franchise. Once this data has been assembled, a matrix could be developed that would rank and com- pare the various factors and their ultimate impact on financial success. This analysis would be extremely useful for current owners, prospective team buyers, and league offices in their effort to assist their franchises in creating financially successful teams.

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